- The U.S. economy won’t be operating at potential – meaning that labor and capital are fully employed – until 2017, CBO projects. That means a lousy job market for years to come. CBO expects the unemployment rate to fall from today’s 9.1 to 8.5 percent in the fourth quarter of 2012—and then to remain above 8% until 2014.
CBO: No Recession, But Growth So Slow Jobless Rate To Top 8% Until 2014
The Wall Street Journal
August 24, 2011
The Congressional Budget Office, in its midyear update of its budget and economic forecast, says it “expects that the recovery will continue,” meaning it doesn’t foresee a recession, but it says that slow growth will keep GDP well below the economy’s potential for several years. On the basis of economic data available through early July – which means it doesn’t reflect more recent gloomy date – CBO projects that inflation-adjusted GDP will increase by only 2.3% this year and by 2.7% next year.
Under current law, it says, federal tax and spending policies will impose substantial restraint on the economy in 2013, so CBO projects that economic growth will slow that year before picking up later to average 3.6% per year from 2013 through 2016. The U.S. economy won’t be operating at potential – meaning that labor and capital are fully employed – until 2017, CBO projects.
That means a lousy job market for years to come. CBO expects the unemployment rate to fall from today’s 9.1 to 8.5 percent in the fourth quarter of 2012—and then to remain above 8% until 2014. “Weakness in the demand for goods and services is the principal restraint on hiring, but structural impediments in the labor market—such as a mismatch between the requirements of existing job openings and the characteristics of job seekers (including their skills and geographic location)—appear to be hindering hiring as well,” CBO said.
Although inflation increased in the first half of 2011, spurred largely by a sharp rise in oil prices, CBO projects that it will diminish in the second half of the year and then stay below 2.0% over the next several years.
CBO predicts yields on 3-month Treasury bills, now close to 0.1%, will average 0.1% next year, reflecting the Federal Reserve’s vow to keep short-term rates low through 2013. It sees the T-bill rate rising to an average 1.5% between 2013-2016. The agency forecasts yields on 10-year Treasurys, which are hovering slightly above 2% now, at 3.2% on average in 2012 and 4.1% over the 2013-2016 period.